Accelerating economic, technological, social, and environmental change challenge managers and policy makers to learn at increasing rates, while at the same time the complexity of the systems in which we live is growing. Many of the problems we now face arise as unanticipated side effects of our own past actions. All too often the policies we implement to solve important problems fail, make the problem worse, or create new problems.

Effective decision making and learning in a world of growing dynamic complexity requires us to become systems thinkersto expand the boundaries of our mental models and develop tools to understand how the structure of complex systems creates their behavior.

This book introduces you to system dynamics modeling for the analysis of policy and strategy, with a focus on business and public policy applications. System dynamics is a perspective and set of conceptual tools that enable us to understand the structure and dynamics of complex systems. System dynamics is also a rigorous modeling method that enables us to build formal computer simulations of complex systems and use them to design more effective policies and organizations. Together, these tools allow us to create management flight simulatorsmicroworlds where space and time can be compressed and slowed so we can experience the long-term side effects of decisions, speed learning, develop our understanding of complex systems, and design structures and strategies for greater success.

University and graduate-level texts, particularly those focused on business and public policy applications, have not kept pace with the growth of the field. This book is designed to provide thorough coverage of the field of system dynamics today, by examining

 Systems thinking and the system dynamics worldview;

 Tools for systems thinking, including methods to elicit and map the structure of complex systems and relate those structures to their dynamics;

 Tools for modeling and simulation of complex systems;

 Procedures for testing and improving models;

 Guidelines for working with client teams and successful implementation.

You will learn about the dynamics of complex systems, including the structures that create growth, goal-seeking behavior, oscillation and instability, S-shaped growth, overshoot and collapse, path dependence, and other nonlinear dynamics. Examples and applications include

 Corporate growth and stagnation,

 The diffusion of new technologies,

 The dynamics of infectious disease such as HIV/AIDS,

 Business cycles,

 Speculative bubbles,

 The use and reliability of forecasts,

 The design of supply chains in business and other organizations,

 Service quality management,

 Transportation policy and traffic congestion,

 Project management and product development,

and many others.

The goal of systems thinking and system dynamics modeling is to improve our understanding of the ways in which an organizations performance is related to its internal structure and operating policies, including those of customers, competitors, and suppliers and then to use that understanding to design high leverage policies for success. To do so this book utilizes

 Process Points that provide practical advice for the successful application of the tools in real organizations.

 Case studies of System Dynamics in Action that present successful applications ranging from global warming and the war on drugs to reengineering the supply chain of a major computer firm, marketing strategy in the automobile industry, and process improvement in the petrochemicals industry.

System dynamics is not a spectator sport. Developing systems thinking and modeling skills requires the active participation of you, the reader, via

 Challenges. The challenges, scattered throughout the text,
give you practice with the tools and techniques presented in the book and
stimulate your original thinking about important real world issues. The
challenges range from simple thought experiments to full-scale modeling
projects.

 Simulation software and models. The
accompanying CD-ROM and website (http://www.mhhe.com/sterman)
include all the models developed in the text along with state-of-the-art
simulation software to run them. There are several excellent software packages
designed to support system dynamics modeling. These include ithink, Powersim,
and Vensim. The CD and website include the models for the text in all three
software formats. The disk also includes fully functional versions of the
ithink, Powersim, and Vensim software so you can run the models using any
of these packages without having to purchase any additional software.

 Additionally, the Instructors Manual and instructors
section of the Website include suggested solutions for the challenges,
additional assignments, Powerpoint files with the diagrams and figures from
the text suitable for transparencies, suggested course sequences and syllabi,
and other materials.

The book can be used as a text in courses on systems thinking, simulation modeling, complexity, strategic thinking, operations, and industrial engineering, among others. It can be used in full or half-semester courses, executive education, and self-study. The book also serves as a reference for managers, engineers, consultants, and others interested in developing their systems thinking skills or using system dynamics in their organizations.

System dynamics is grounded in control theory and the modern theory of nonlinear dynamics. There is an elegant and rigorous mathematical foundation for the theory and models we develop. System dynamics is also designed to be a practical tool that policy makers can use to help them solve the pressing problems they confront in their organizations. Most managers have not studied nonlinear differential equations or even calculus, or have forgotten it if they did. To be useful, system dynamics modeling must be accessible to the widest range of students and practicing managers without becoming a vague set of qualitative tools and unreliable generalizations. That tension is compounded by the diversity of backgrounds within the community of managers, students, and scholars interested in system dynamics, backgrounds ranging from people with no mathematics education beyond high school to those with doctorates in physics.

If You Dont Have a Strong Mathematics Background, Fear Not

This book presents system dynamics with a minimum of mathematical formalism. The goal is to develop your intuition and conceptual understanding, without sacrificing the rigor of the scientific method. You do not need calculus or differential equations to understand the material. Indeed, the concepts are presented using only text, graphs, and basic algebra. Mathematical details and references to more advanced material are set aside in separate sections and footnotes. Higher mathematics, though useful, is not as important as the critical thinking skills developed here.

If You Have a Strong Mathematics Background, Fear Not

Realistic and useful models are almost always of such complexity and nonlinearity that there are no known analytic solutions, and many of the mathematical tools you have studied have limited applicability. This book will help you use your strong technical background to develop your intuition and conceptual understanding of complexity and dynamics. Modeling human behavior differs from modeling physical systems in engineering and the sciences. We cannot put managers up on the lab bench and run experiments to determine their transfer function or frequency response. We believe all electrons follow the same laws of physics, but we cannot assume all people behave in the same way. Besides a solid grounding in the mathematics of dynamic systems, modeling human systems requires us to develop our knowledge of psychology, decision making, and organizational behavior. Finally, mathematical analysis, while necessary, is far from sufficient for successful systems thinking and modeling. For your work to have impact in the real world you must learn how to develop and implement models of human behavior in organizations, with all their ambiguity, time pressure, personalities, and politics. Throughout the book I have sought to illustrate how the technical tools and mathematical concepts you may have studied in the sciences or engineering can be applied to the messy world of the policy maker.

I welcome your comments, criticisms, and suggestions. Suggestions for additional examples, cases, theory, models, flight simulators, and so on, to make the book more relevant and useful to you are especially invited. Email comments to <BusDyn@mit.edu>.